# Answer to Question #245983 in Finance for Julia

Question #245983

assume that an investor is willing to pay $908.32 for a bond (pv 1000, coupon rate 8%, maturing in 20 years) what is the investor's required rate of return, kd? (bond issuer's viewpoint) what if the net price after flotation costs is$850, what then will kbe?

what is the after-tax kassuming tax rate of 30%?

1
2021-10-03T14:17:20-0400

a)

present value of annuity:

"P\\frac{1-(1+k_d)^{-n}}{k_d}"

where P is periodic payment,

kd is rate of return,

n is number of periods.

present value of the bond:

"P\\frac{1-(1+k_d)^{-n}}{k_d}+1000\\cdot (1+k_d)^{-n}"

"80\\cdot\\frac{1-(1+k_d)^{-20}}{k_d}+1000\\cdot (1+k_d)^{-20}=908.32"

Using Bisection mehtod on online calculator https://atozmath.com/, we get:

"k_d=0.09=9\\%"

b)

"80\\cdot\\frac{1-(1+k_d)^{-20}}{k_d}+1000\\cdot (1+k_d)^{-20}=850"

"k_d=0.0973=9.73\\%"

c)

after-tax rate:

"0.08\\cdot (1-0.3)=0.056=5.6\\%"

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